Fed

Will Fed Raise Rates Sooner Than Expected?

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fed raise rates

There are several economists out there predicting that rising inflation will push the Federal Reserve to raise interest rates sooner than project. In fact, half of the Fed Board was talking about a rate increase in 2022 instead of the previously telegraphed 2024. But, does that mean The Fed will raise rates sooner than previously stated? Inflation Isn’t Coming All of this is predicated on inflation rising. The concern right now is that prices have been rising this year. This is all true, but this is October and that means the holiday shopping season is upon us, and chances are it won’t look very good come January. We’ve already seen the job reports showing that job growth is slowing despite a supposed worker shortage. Unemployed people spend a lot less at Christmas. But, there is more than that. Employed people who know unemployed people spend less as well due to a fear that they could soon be unemployed as well. Add to that reports that there are going to be supply chain problems, and that container ships have to wait excessive times to get their cargo unloaded by dock workers on the west coast and you end up with a …

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Fed Chairman Jerome Powell Second Term

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fed-chairman-powell

I don’t like to write about politics, and certainly not speculation about politics, but the potential announcement of Federal Reserve Chairman Jerome Powell getting a second term is interesting. First off, Powell, is a Trump appointee. That gets people mad in certain quarters, like the Postmaster guy. However, Powell is a solid, seasoned hand acting as Fed Chief, and no one really cares who appointed him. In fact, Powell has done such a good job keeping the economy floating with minimum rocking that the only reason people were thinking there might be someone new was in order to make a “historic” appointment of someone who wasn’t a white guy — or white woman, since Janet Yellen already broke that ceiling. Now, it looks like President Biden has enough fights to pick with Congress, including ones within his own party (Dems really don’t know how to win, do they?). So, a sure thing like renominating Powell seems like a good way to be able to focus energy elsewhere. And, lucky for everyone else, he’s a good choice for the job. Check out my review of Acorns investing here. Then, look for my Capital One Miles redemption chart. You can read about …

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Federal Reserve Meeting Notes Meaning

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fed reserve meeting notes

The Federal Reserve meets once a quarter. After that meeting, they announce what, if any changes, they have made to the Fed’s interest rate policy. At the last meeting, there were no changes to the Federal Reserve’s interest rate targets. The Federal Reserve meeting notes refine the details of the main Fed announcement. Fed’s Meeting Notes Later, after they have been reviewed and made viewable for the public, the Fed releases the notes from it’s meeting. Financial analysts and market pundits then parse these notes for clues to the Fed’s thinking. This time, everyone is looking toward how the notes take about bond-buying tapering. What does this mean? The short version is that when the economy went so bad back during the Great Recession following the real estate market crash, the Fed had to do more than just cut interest rates to stabilize the economy. In my opinion, the Fed Chairman Ben Bernake saved the US economy from a hard recession by flooding the market with liquidity and saying that he would keep doing it for as long as it takes. Check out my Acorns review is Acorns Legit? Basically, as long as it takes, has never really come. One …

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Fed Stays Steady

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The Federal Reserve left interest rates unchanged, BUT they are beginning to taper off their bond buying program which will soak up some of the cheap money floating around out there and gently tighten the money supply. This is a smart move that helps reduce inflationary pressures while at the same time avoiding strangling the recovery growing out of the pandemic recession.

How Is The Economy Doing?

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congress blame game

When it comes to the U.S. economy there are a lot of opinions. Many of those opinions have motivations behind them that tend to skew their analysis. So, who should you listen to about the economy? Well, you could do a lot worse than the Chairman of the Federal Reserve. The Economy Is Weak The U.S. recovery is weak, very weak. Although jobs are recovering, they are still lower than they were when the pandemic started. The opinion of the Fed Chairman is that the economy needs more help in the form of government stimulus. Of course, the politicians in Washington care more about Dems vs. Repubs than they do about America, so we are caught in petty fights while the economy sputters. Why The Economy Needs Help While politicians, especially the President, love to point to the stock market as proof the economy is doing well, most investors are very skittish right now. Any bad news at all, and they’ll turn into sellers, and take the market with it. Stimulus in the form of extra unemployment benefits has proven particularly helpful to the economy. Why? Because people on unemployment spend that money, and that stimulates the economy. Save money …

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Fed Says 0% Interest For Years

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future tunnel

According to news reports, the Federal Reserve will signal that its interest rate plan will remain unchanged through the end of 2023. These kinds of “leaks” are typically from Fed staffers trying to lessen any shock ahead of the actual Fed meeting. What 0% Interest For Three Years Means For starters, this is both a bold, and a baloney statement. It’s bold in that stating there will be no interest rate hikes for three years, the Fed is making a prediction about the U.S. economy and where it will be going and committing to 0%. It’s baloney, because if things go well coming out of the whole Corona virus thing and the U.S. economy roars ahead in 2021, or 2022, the Fed will just come out with a new statement saying that economic data dictate a new policy direction. So, what is the point of the Fed’s statement? Investors know how to make money. It isn’t about predicting the future, it’s about determining what the risk is and pricing it accordingly against the possible return. This is a lot easier than it sounds. It requires looking at an impossible number of variables, and weighing each one. In the end, the …

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Negative Interest Rates and The Fed

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negative interest rates

Like any type of news, sensational, click-bait news draws in a lot of clicks for financial websites. Unfortunately, this can lead to a lot of confusion, especially for folks who only read the headlines. I can often tell when this happens because my questions fill up with vaguely understood concepts and concerns about unlikely situations and issues. This is happening more and more with the topic of negative interest rates. Negative Interest Rates What are negative interest rates? Let’s start with what are negative rates. The concept is simple on its face. Interest rates are normally, “positive.” The borrower pays a (positive) interest rate on a loan to the lender. Or, in the case of a savings account, the bank pays a (positive) interest rate to the account holder. In a world of negative interest rates, this would theoretically reverse. The lender would pay the borrower to take out a loan, and the account holder would pay the bank to keep their money. If this sounds bizarre, you are right, and it wouldn’t really happen. — We’ll get to that in a moment. More abstractly, The Federal Reserve Bank pays banks a small amount of interest to hold deposited funds …

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High-Yield Junk Bonds Rally On Fed Buying

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junk bonds trash bags

So, this is new. The Federal Reserve announced that it would buy junk bonds, or high-yield bonds, depending upon your point of view. Despite the name, junk bonds are not worthless and aren’t “junk” at all. Also called, “high-yield bonds,” junk bonds are regular corporate bonds issued by companies just like regular, or “investment grade bonds.” Many corporate bond issues are rated by various companies including Moody’s, and Standard & Poor’s. The ratings go from AAA (Excellent), all the way down to D. Typically, bonds rated BB or lower are considered junk bonds. See my review about Rakuten rebates. Fed Buying Fallen Angels The Fed isn’t headed out to buy the most fragile of corporate bonds. Rather, the Fed is looking at buying the so-called fallen angles. Bonds that were rated investment-grade — B or higher — on March 22, but have since fallen into junk territory are eligible for Fed intervention. The idea is that there are several otherwise decently capitalized and secure companies out there that have been downgraded into junk territory not through any fault of their own, but rather due to the bottom of the economy falling out from under them due to the coronavirus. Many …

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Neutral Interest Rates

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on the edge

Fed Chairman Jerome Powell made some very interesting remarks where he said he thought that interest rates were “just below” neutral. This is bizarre on many levels. First and foremost, neutral interest rates are perfect interest rates unless your economy is in a recession in which case you want stimulating interest rates, or if you are trying to control inflation in which case you want interest rates that have a constricting effect on the economy to stop price increases. So, if interest rates were close to neutral, and inflation was not increasing, then wouldn’t you want to keep interest rates at neutral? Check out my notes about Ebates and holiday shopping. But, Powell and the rest of the Fed have been telegraphing a December rate increase as loudly as possible. In other words, event though interest rates are “just below” neutral, Powell and company want to raise them. Why? Economy is Teetering The other weird bit is that everyone can see the economy is slowing down, and quickly. Housing starts are way down. Housing sales are decreasing. Both are very much affected by higher rates. The stock market is falling, having erased the whole year’s gains. Also, in very large …

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Stocks Have Hard Day – Just Volatility, or the Recession Knocking?

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crystal ball stock market economy

Stocks had a pretty big selloff today in response to a big drop in the bond markets. For those of you keeping score (the baseball kind, not just the points scored), here is the way the game looks so far. Check out my review of Credit Karma. US economy is still expanding, making it one of the longest economic expansions The economy itself is cyclical. It ALWAYS goes up AND down. So, if it has been going up for a very long time, sooner or later, there will need to be a correction, or recession. How hard the recession ends up being is a function of how it hits. A “pop” leads to a hard (potentially shorter) recession. A “soft landing” means markets can regroup and reprice (usually with a lot of sideways movement) without shocking the system. The Fed keeps raising interest rates because… well, because they want to be “hawks” and not “doves” and just for the barest of moments, the supposed “target” of 2% inflation was touched, so here comes the Fed. The Fed not only keeps raising interest rates, it keeps saying it is going to raise interest rates more. One more hike this year, in …

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